Philippines: DOE puts spotlight on reliable power supply

Philippines: DOE puts spotlight on reliable power supply

Securing reliable power supply and access to electricity for every household
has been the core focus of Energy Secretary Alfonso Cusi and his team in the
first year of the Duterte administration.

Cusi was faced with a long list of issues in the sector and the list grew
longer as he took over the top post of the Department of Energy (DOE).

He undertook a major reorganization, but retained some key personnel in the
agency, and launched a sector-wide review on the sector.

It was a very challenging year for the power sector but industry players are
seeing some improvements with the continued interest and investments in the
country, citing that more policies need to be implemented to propel the
sector.

DOE with a vision

Most important, the current DOE administration has come out with a firm
vision for the power sector, Sen. Sherwin Gatchalian said.

He is referring to the agency's new target of adding 43,765 megawatt (MW) of
power capacity by 2040 which runs parallel to government's long-term vision
dubbed Ambisyon Natin 2040.

Until 2040, the country would need 25,265 MW of baseload power which can be
sourced from coal, geothermal natural gas, nuclear, biomass and hydropower;
14,500 MW of mid-merit power which can be served by power sources such as
natural gas; and 4,000 MW peaking power from diesel oil, wind and solar
resources.

"As a policymaker, it is a big step that the DOE has formed a vision for
the country. I think that one alone is quite an achievement. In the past… it
wasn't very clear where the sector was headed," he said.

From an outsider's point-of-view, coming out with an energy mix is one of
the biggest achievements the DOE made in the first year of the Duterte
administration.

"The 70, 20, 10 is a huge leap forward for the DOE because even up to two
years ago, the DOE couldn't tell the difference between peaking and
baseload," said Sarah Fairhurst of the Launtau Group, a Hong Kong-based
strategy and consulting firm.

Late last year, Energy Secretary Alfonso Cusi announced the agency's new
energy mix comprising of 70 percent baseload, 20 percent mid-merit and 10
percent peaking, instead of setting a cap per technology.

Baseload power plants can provide the minimum level of demand in a power
grid over 24 hours while mid-merit plants are those that can fill the gap
between baseload and peaking plants which run during peak hours.

Under such scenario, each technology will compete with each other and
therefore bring down the cost of electricity. The decision is left with
power developers on which technology should they invest in as long as they
meet the country's power requirements.

However, Fairhurst cautioned that this understanding should not be used a
mandate for the power industry moving forward to flourish since supply and
demand changes over time.

"The 70-20-10 [mix] is a really nice guideline and a way of thinking about
power and is very helpful to improve the analysis of the sector. But
anything as mandatory is risky," she said.

'EO 30 for faster permitting, approval process'

Major power players are one in saying the sector remains strong with
intensifying competition and growing investments.

"First year, you've seen good growth in the economy. There's a lot of things
in power that seem to be improving. I think you're seeing a lot of projects
being built, you're seeing a lot of interest of people investing, so I think
that's very positive," Aboitiz Power Corp. chief executive officer Erramon
Aboitiz said.

"We've had some problems, some outages of some plants, earthquake and stuff
like that, but that's part of it. That's why it's important enough power
plants are built so that there are reserves, so when you have things like
these, there's enough power," he added.

They also highlighted the recently signed Executive Order (EO) 30 which
could spur more investments in the sector.

Signed by President Duterte last June 30, the EO provides that government
agencies with energy projects should presume other agencies were able to act
upon and issue their respective permits within a 30-day period.

"There also seems to be strong resolve to improve the investment climate.
[The] signing of EO 30 is a promising step," AC Energy Holdings Inc.
president and chief executive John Eric Francia said.

The DOE has been pushing for a policy that would place critical and priority
energy projects of national significance to undergo a speedier permitting
process and avoid any more delays.

This is necessary because longer processing time for power projects could
translate to higher electricity prices for consumers, Cusi said.

This will be monitored by the Energy Investment Coordinating Council (EICC),
which will be led by the DOE. The council will spearhead and coordinate
national government efforts to harmonize, integrate and streamline
regulatory processes, requirements and forms relevant to the development of
energy investments in the country.

"If you look at all the delays of power plants, it's always things like
permitting, right of way issues. I think the intention of EO 30 was to
address those, so I think that's very important," Aboitiz said.

Retail competition

But not everything was smooth sailing for the sector. The renewable energy
sector, in particular, seemed to have slowed after the feed-in tariff (FIT)
controversy and the lack of clear-cut policies as guidance.

It took a lot of time before the National Renewable Energy Board (NREB), the
DOE's advisory body tasked with the effective implementation of renewable
energy projects in the country, was able to start resolving the issues
besieging the sector.

There was the issue of too many solar projects in Negros, which congested
the transmission lines in the island and prevented them from supplying the
grid.

There was also the problem caused by the race to FIT, which stranded over
200 MW of solar capacity because they were not able to qualify under the
500-MW installation target.

"For the last year, all we have been doing is trying to put out the fire
and fix the problems such as the Negros issue, stranded solar…So what this
administration has done is resolve, try to fix those problems, including
delay in awarding of service contracts," NREB chairman Jose Layug said.

Cusi has announced that the FIT scheme would not be expanded by another
round because this only adds burden to consumers already paying high
electricity rates.

Instead, other policies will be pushed such as the Renewable Portfolio
Standards (RPS) and the Green Energy Option to further develop the sector.

RPS is a market-based policy that requires distribution utilities and other
industry participants to source a portion of their power supply from
eligible renewable energy resources.

Meanwhile, the Green Energy Option provides end-users the option to choose
RE resources as their sources of energy.

Layug said these policies are underway, with the RPS submitted to the DOE
and the Green Energy Option undergoing final tweaking process for submission
to the DOE.

Another major hurdle the sector is the implementation of retail competition
and open access (RCOA).

Intense retail competition in the segment of consumers with at least one
megawatt (MW) demand has resulted in lower electricity prices to contestable
customers, Francia said.

However, the DOE also needs to implement enabling laws or implementing rules
and regulations for the 750 kilowatt threshold under RCOA, which is still
pending with the Supreme Court, he said.

The Supreme Court issued a temporary restraining order (TRO) last February
on the DOE and Energy Regulatory Commission (ERC) to implement the mandatory
migration of large power consumers to RCOA.

The mandatory migration to RCOA of end-users with at least one-MW usage was
scheduled last Feb. 26 while users with at least 750-kw demand was supposed
to migrate by June 26.

The TRO was sought by the Philippine Chamber of Commerce and Industry, San
Beda College Alabang Inc., Ateneo de Manila University and Riverbanks
Development Corp., which said the new rules supposedly limit the accredited
suppliers for big power consumers which must be given a choice whether to
stay with their current distribution utility suppliers.

It has been 16 years since EPIRA was enacted, and RCOA is one of the
provisions that have yet to be implemented. It aims to institutionalize
competition in the supply of electricity, allowing the electricity end-users
to choose their suppliers based on low price and other factors.

ERC issue

But the most problematic agency in the sector is the Energy Regulatory
Commission.

The situation has caused uncertainty in the ERC from performing its role as
the country's power regulator as well as the sector's future developments,
Francia said.

The death last year of ERC director Francisco Villa, Jr. has opened a
Pandora's box, as his suicide letters revealed corruption activities in the
agency.

Because of this, President Duterte immediately ordered ERC officials to
resign or else he will abolish the agency. But the ERC officials did not
need the President's call.

ERC chairman Jose Vicente Salazar went on a one-month break in December
instead, but was then placed under a 90-day preventive suspension in May for
deceiving Malacañang in filing his travel authority and designating somebody
without proper authority as OIC while he was abroad.

Not only that, ERC commissioners Alfredo Non, Josefina Magpale-Asirit,
Gloria Yap-Taruc and Geronimo Sta. Ana are also facing several graft charges
and complaint for delaying mandatory implementation of the competitive
selection process (CSP) policy before the Ombudsman.

They have also been slammed by lawmakers for sitting on the approval of
power supply agreements (PSAs) filed by Manila Electric Co. (Meralco) and 90
other applications.

"I think, clearly, [we just need] a continued well-functioning DOE and ERC.
What's necessary is that the private sector and government sector move as a
team, as one and the necessary support, encouragement, incentives are
provided by the public sector in a timely action in order to enable us to
ensure adequate, reliable, quality power at the very competitive or least
cost. That's our commitment to our more than six million customers," Meralco
president Oscar Reyes said.

Apart from internal issues, the ERC also needs to fix how it regulates PSAs.

Fairhurst said it should follow what the Electric Power Industry Reform Act
of 2001 (EPIRA).

"The way that power sale agreements are regulated here, it is my contention
that it doesn't comply with EPIRA because EPIRA requires regulated prices to
enter consumers take account of actual costs and actual and economic costs.
Economic costs include opportunity costs," she said.

"EPIRA does not say you must regulate on a contract by contract basis. It
says you must regulate retail tariffs on actual and economic costs and the
ERC does not do that because they doesn't understand what the economic cost
means," she added.

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Link to Original Article:
http://www.philstar.com/business/2017/07/28/1722062/doe-puts-spotlight-relia
ble-power-supply

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com